C Corporations are taxed twice. One taxation at the corporate level and another at a personal level.

How each is created/formed

S Corp comprises fundamental. They then submit a request to the IRS by complying with Form 2553

They file a license for constituting a company in your state.

What is S Corp?

S Corp is a legal partnership. It makes lawful vote to be imposed a toll on under Subchapter S of Chapter 1 of the Internal Revenue Code.

S corporations have limited liability for shareholders just like C-Corps. These businesses can take advantage of pass-through taxation.

The profits and losses of S corporations are reported on the owners’ tax returns. There is no corporate income tax levied on S Corps.

The compliance obligation and documentation are similar to C Corps. S Corp needs to file its articles of incorporation and issue stock. They also need to hold shareholder and director meetings and more. But they have limited ownership and limited stock flexibility.

S Corp

What is C Corp?

C Corp is any corporation taxed differently from the owners. The taxation of gains is done at the corporate level. Profit distributions to shareholders in the form of dividends are also taxed.

C-Corporation is owned by shareholders but they don’t make most of the decisions. The official daily duties of the business lie in the hands of the officers of the C-corporation like the CEO.

To structure your business as a C corporation, you need to register articles of incorporation with the state government.

C Corp can have a lot of shareholders. They can also easily raise money as they can issue much class of stock to an unlimited number of shareholders. But they pay more in taxation due to double taxation.

C Corp

Main Differences Between S Corp and C Corp

Formation

To form your company as an S Corp, you need to fill IRS FORM 2553. After the registration, you become an S-Corp for federal tax purposes. To be treated as S Corp for state tax, you need to file extra papers at the state level.

The C Corp is the non-remittance type of corporation. It becomes an ordinary C Corp when you submit reports of constituting a company with the secretary of state.

Ownership

S Corp is limited to up to a hundred shareholders. Shareholders must be resident aliens. Besides, there is no variation between shareholders. This makes it hard to raise funds.

C Corp has an unlimited number of shareholders and several classes of shareholders. This provides more flexibility to develop the business.

Taxation

S corporation has a unique tax classification. Shareholders of S Corp report their share of the business profit and losses on the personal tax return. They pay tax once at the personal income tax rate. As a shareholder of S Corp, your business income tax is deducted at a personal level. This is when you file Form 1120S.

C Corp is double taxed. The first taxation takes place at the corporate level when shareholders file corporate income return tax Form 1120. The second taxation is done on the owner’s income tax returns. But this is when the corporate profit is distributed as a dividend to shareholders.

Infographic

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Conclusion

You should consider C Corporation if you are new and want to reinvest gains back into the business. If you intend to generate money from investors who are likely to invest in a pass-through entity, go for C Corp.

If you are a domestic corporation and you don’t plan on having more than a hundred shareholders, consider S corporation.

Consider investing in S Corp if you want to take the interest out of the company. Also, if you plan to pay you a fair salary as per the IRS.

The way you structure your business will be a determining point. It will have an impact on the future of the business. Consult an accountant or lawyer if you are unsure about choosing your business entity.

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